The Canadian Economy – Adjusting to a World of Change

The Canadian Economy – Adjusting to a World of Change

The global economy has struggled to build momentum since the 2008 financial crisis. Improved prospects in the U.S. and the U.K. have been counterbalanced by renewed weakness in Japan and much of the Eurozone. Growth among the major emerging market powerhouses has been mixed, with China decelerating – though still in the fast lane – India hopefully accelerating and Brazil trying to get out of low gear.

From a Canadian perspective, the revival of U.S consumer spending on big-ticket items like cars and housing has been good news for exporters, particularly with the loonie swooning towards 90 cents (US). The resource sector, which accounts for nearly half of Canada’s foreign sales and one-quarter of business investment, also has benefited from higher energy prices and solid global demand for many commodities. Looking ahead, exports and business investment will have to take up some of the slack in driving Canadian growth as consumers and governments become more circumspect about their spending and finances.

The reasons are straightforward. Residential construction is receding after a multi-year boom and consumer spending will be tempered by slower job growth and relatively high household debt. Unlike their U.S. counterparts, Canadian households do not have a deep reservoir of pent-up demand for housing and autos. While Ottawa is poised to eliminate its deficit, sluggish revenue gains and the need to improve fiscal outcomes in a number of provinces largely preclude additional rounds of fiscal stimulus.

Borrowing costs will remain low with the Bank of Canada tending to lag the U.S. Federal Reserve when it finally starts nudging short-term rates higher next year. Renewed investor interest in safe-haven investments and the dramatic drop in Washington’s deficit will limit the back-up in bond yields. Better economic and fiscal fundamentals will also reinforce U.S. dollar strength against a number of currencies, including the Canadian dollar, which is expected to fluctuate around 90 cents(US).

Taken together, these factors suggest that Canadian growth will average around 2-2 ½ per cent through 2015. Building economic momentum beyond mid-decade will require exports to take on a greater role supporting growth, particularly if consumers and governments become more cautious spenders. While a lower Canadian dollar and improved productivity help export competitiveness, diversifying beyond traditional U.S. markets, which still account for nearly three-quarters of foreign sales, has become a strategic necessity.

Warren Jestin is Scotiabank’s Chief Economist and has been with the Bank since 1979. Warren is a popular public speaker on Canadian and International economic issues, meeting with clients and experts from around the globe to keep pace with the latest economic, political and financial market developments.
Warren is on Advisory Boards for the Sobey School of Business at St. Mary’s University, and the University of Guelph where he is the Economist in Residence at the College of Management & Economics. Warren also serves on several other advisory boards including The Vineland Research and Innovation Centre, the Canadian Foundation for Economic Education and the Markham Stouffville Hospital, where he is past Chair.
He has also been a member of the C.D. Howe Institute’s Monetary Policy Council and has been involved with policy committees of the Canadian and Ontario Chambers of Commerce and the Toronto Board of Trade.
Before joining Scotiabank, Warren earned a Ph.D. from the University of Toronto, worked at the Bank of Canada and taught at several universities.

Registration Details:
Please register for this event by e-mailing Vivien Hall-Cho at admin@tmac-toronto.ca no later than noon on Friday, September 12, 2014. If you are a member and unable to attend, send a guest for free, another benefit of TMAC-Toronto membership.